Where the Medicare Dollars Go
Medicare reform thus far has been focused on $79 office visits, co-payments for home health care, hospital readmissions, Miami infusion clinics, the price paid for scooters, $45 resting EKG’s, the Plan B deductible, etc. These are important areas to pursue — but they are not where the real money is.
While we are debating the “doc fix,” the drug companies, device companies and hospitals are backing up the truck and cleaning out the store!
Consider the following paid claims paid by Medicare in Indiana in 2011:
- 113 Heart Transplants…Average payment was $773,877 apiece.
- 96 Bone Marrow Transplants…Average payout was $509,637 apiece.
- 129 Liver Transplants…Average payout was $367,000 apiece.
- 2,200 Tracheostomies…Average payout was $376,103 apiece.
- 1,517 Open Heart Surgeries…Average payout was $185,000 apiece.
Altogether, the 12,000 largest claims in one state totaled $2.4 billion in Medicare spending. If the other states are consistent, then large claims like these ate up $120 billion of Medicare’s total spending of $545 billion. And when you factor in sepsis treatments, defibrillator-implants, and similar claims that cost “only” $75,000 each, almost two-thirds of Medicare spending — over $300 billion a year — is focused on just ten percent of beneficiaries.
This has nothing to do with doctor’s fees, which are normally just a fraction of the cost. A heart surgeon might receive $2,500 out of a $60,000 operation. An orthopedic surgeon may receive $3,000 out of a $40,000 operation. Neurosurgeons may receive $1,650 when the hospital’s “facility fee” is $60,000.
Drugs and devices often make up 40-50% of every large claim. Hospital and rehab centers take another 40%.
Many of the largest claims are quite simply padded. Kidney transplants can often be done with a 5 day inpatient stay, and yet the hospital might collect $250,000. No wonder hospitals stay quiet about it; no wonder they lobbied for the IPAB to do nothing about hospitals until 2020.
The 500+ DRG codes for hospital care include too many higher payments for “complexity.” (Pending changes to DRG’s might only make this worse.
For the last 25 years, health policy experts have waited for better drugs and faster surgeries to cut back what we spend on hospitals. And in fact, we have reduced hospital utilization and days of care. But hospitals have brought in more revenue on fewer patients, and we have let them do it through up coding. They use a whole portfolio of “revenue-enhancing” techniques:
- Falsified diagnoses.
- Routine use of modifiers that exempt claims from auditing.
- Claims for services and supplies not provided.
- Add-on codes and claim splitting.
Higher spending on hospital care has nothing to do with the health of seniors. It is solely due to the exploitation of graded fee schedules. Hospitals will scream at any reform…but most American hospitals are over-built and overstaffed — especially with computer analysts, billing clerks and technicians. In 1990, America had 1.7 million hospital beds, 3.5 million employees, and total budgets of $235 billion. By 2010 there were 940,000 beds, 4.6 million employees, and total budgets of $726 billion.
And all of this happened while better drugs and microsurgery made general hospitals less necessary.
Bob Hertz is the Director of The Health Care Crusade.
High costs like that are ridiculous!
That’s what happens when there is a non competitive 3rd party sytem
Yes. It distorts the entire system.
Lets introduce real prices and real competition into the medical market!
Who defines the real prices? Should we just use the CPI?
Exactly. http://www.vanderbilt.edu/magazines/vanderbilt-business/2008/11/consumer-price-index-unreliable-measure-of-inflation/
Every medicare and medicaid change makes things worse, while fixing very little
I don’t know if you can say “every” change makes it worse, but it sure isn’t helping much.
Years ago there were examples of where patients who died on the operating table had additional procedures done to enhance the surgeon’s revenue. You have to consider that operating on a dead patient reduces the probability for a positive outcome. But also reduces the chances of malpractice liability.
Wow, fascinating. Although it seems ethically questionable, that is a pretty genius idea.
Note to Qwerty and others:
Personally I am not so sure that third party payment systems are the whole problem.
Numerous other industrial nations have third party payment systems that do in fact deliver cost control.
The difference is that these other systems use price controls for drugs and devices, and they use explicit rationing for costly procedures. If a cancer drug costs $100,000 for five months’ survival, they may just not buy it for anyone.
Transplants may just be denied to persons over 70.
This would never fly in America right now, because it sounds too much like death panels. (That is because it is death panels.)
I do not know the whole solution myself, and welcome all input. I do believe that third party controls will be needed in some form.
The supposed cost control in third party payment systems like those in Canada, Britain, and Europe generally consists of rationing by waiting due to the shortages of everything that the price controls create. It kills people, but that doesn’t show up in the cost accounting.
Assuming, of course, that those countries do have health systems that actually control costs. Without prices, it is really hard to tell, especially when there are clear indicators suggesting that not all costs are accurately accounted for.
Linda is correct that we should assume nothing about other health care systems, at least not without very careful review.
Still, one can make the following argument — that letting people die of diseases that have been fatal for all of human history until 1975 is not the same as killing them.
Daniel Callahan has been making this argument for a number of years.
Of course it is a brutal argument to have, in public or in private.
My solution would be to pay far less for heroic medicine, and thereby be able to do even more of it without bankrupting the country.
That would preserve our humane-ness and our federal budget.
My goal in this post is to get us to stop taking health care prices for granted. That is step no. 1 in any solution.
Costs will be cut dramtically. In the last two months I believe that Medicare has cut or reduced treatments for participants.
Kidney dialysis has been cut for some patients. A 73 year old working about 30 hours per week still and otherwise healthy as been denied for bypass surgery.
Start asking around, pay attention, you might find more.